Abstract

http://ssrn.com/abstract=1967372
 
 

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Recessions and the Cost of Job Loss


Steven J. Davis


University of Chicago; National Bureau of Economic Research (NBER)

Till Von Wachter


Columbia Business School - Economics Department; Institute for the Study of Labor (IZA)

December 2011

NBER Working Paper No. w17638

Abstract:     
We develop new evidence on the cumulative earnings losses associated with job displacement, drawing on longitudinal Social Security records for U.S. workers from 1974 to 2008. In present value terms, men lose an average of 1.4 years of pre-displacement earnings if displaced in mass-layoff events that occur when the national unemployment rate is below 6 percent. They lose a staggering 2.8 years of pre-displacement earnings if displaced when the unemployment rate exceeds 8 percent. These results reflect discounting at a 5% annual rate over 20 years after displacement. We also document large cyclical movements in the incidence of job loss and job displacement and present evidence on how worker anxieties about job loss, wage cuts and job opportunities respond to contemporaneous economic conditions. Finally, we confront leading models of unemployment fluctuations with evidence on the present value earnings losses associated with job displacement. The model of Mortensen and Pissarides (1994) extended to include search on the job generates present value losses only one-fourth as large as observed losses. Moreover, present value losses in the model vary little with aggregate conditions at the time of displacement, unlike the pattern in the data.

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Number of Pages in PDF File: 72

working papers series


Date posted: December 3, 2011  

Suggested Citation

Davis, Steven J. and von Wachter, Till, Recessions and the Cost of Job Loss (December 2011). NBER Working Paper No. w17638. Available at SSRN: http://ssrn.com/abstract=1967372

Contact Information

Steven J. Davis
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Till Von Wachter
Columbia Business School - Economics Department ( email )
3022 Broadway
New York, NY 10027
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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